Among most life science CEOs, there’s no venue more popular for selling one’s story to potential investors and partners than the annual JPMorgan Healthcare Conference. As 8,000 attendees get ready to converge on San Francisco for the 42nd installment of the big symposium, though, the stakes for telling that story seem unusually high.

For one, biopharma deal activity is coming off a downturn. After peaking during the pandemic period of 2020-2021, deal volume declined to 212 last year, from 245 in 2022, according to a tally KPMG released on Friday. The tally is current as of December 10.

Due to a haymaker of headwinds, ranging from an unprecedented degree of policy disruption to uncertainty around generative AI and other technology, a concussed industry had less capacity for M&A last year. Add to that questions on the continued high cost of capital and trying to understand which valuations were real and which weren’t.

“At the end of the day, many of our companies and our investors just put the brakes on 2023,” said Kristin Pothier, KPMG’s U.S. sector leader for life sciences.

Indeed, financial investors — not included in the aforementioned biopharma M&A activity totals — also felt the pinch.

“Even our largest funds that have a huge amount of capital or a huge amount of dry powder available said, ‘Cash is king and we’re very reluctant in deploying it at the beginning of the year,’” explained Thomas Kern, managing partner at life sciences deal advisory firm VINC, which serves mainly international private equity clients and other investors.

“At the end of the year, when I was speaking to people, I simply called it, ‘The Year 2023, Full Stop.’ And everybody understood, because it was a bad year,” Kern added.

Pharma majors, facing a $300 billion patent cliff in the years ahead, are feeling pressure for deals to replenish aging pipelines. And despite macroeconomic headwinds and a more assertive Federal Trade Commission, companies such as Pfizer and AbbVie were able to execute large acquisitions to restock assets, especially in the area of precision medicine.

Pfizer’s $43 billion acquisition of Seagen, a biotech firm specializing in developing antibody-drug conjugates (ADCs) for cancer, topped the year in deal size. AbbVie bought into the hot ADC market as well with its planned $10.1 billion takeover of ImmunoGen. Two multibillion licensing deals, by Merck and GSK, underscored the importance of ADCs to pharma.

Moving beyond oncology and rare diseases to areas like immunology, precision medicine is poised for even more growth, a trend which MM+M spotlighted after last year’s JPM. One proof point was the second-largest deal of 2023, Merck’s $11 billion purchase of Prometheus Biosciences, whose lead candidate PRA023 is an anti-TL1A drug for treating immune-mediated diseases.

Activity in biopharma was also fueled by strategic R&D partnerships, notably in the area of cell and gene therapies, as new late-stage therapies progressed through the pipeline and moved to tap into additional manufacturing capacity.

That said, various pharma majors still face myriad questions. Pfizer, for instance, is confronting analyst skepticism after the drugmaker drastically lowered financial guidance due to having overestimated demand for its COVID products. AbbVie will be called on to forecast the erosion in its now off-patent Humira franchise. And Bristol-Myers Squibb will be asked about the potential impact of biosimilars on its I&I drugs Sotyktu and Zeposia.

Even Novo Nordisk and Eli Lilly, makers of the wildly popular GLP-1 weight-loss drugs Ozempic and Wegovy (Novo), Mounjaro and Zepbound (Lilly), will face questions about tolerability of their products. For instance, despite preliminary study data showing Novo’s semaglutide helped reduce the risk of cardiovascular events, many patients were found to have discontinued. Additionally, many carriers remain leery of coverage for GLP-1s; how to pay for them remains a key unknown.

Looking ahead, three federal government policy issues threaten to slow M&A over the next 12 months: The FTC’s decidedly anti-merger stance, implementation of the Inflation Reduction Act and the Biden administration’s new NIH framework for march-in rights. 

The FTC has already had a tangible impact, with Sanofi scrapping a Phase 1 licensing deal with Maze Pharma due to a suit filed by the agency. In terms of the IRA, a number of pharma companies have shied away from partnering with biotechs to help develop and commercialize small molecules, which get a shorter nine years of protection from price negotiation under the law. 

But there’s cause for optimism. The Food and Drug Administration approved 55 new molecular entities and biologics last year, up from 37 in 2022. New data readouts and other catalysts abound. According to a KPMG survey, 61% of healthcare and life science investors plan to increase deal activity in 2024, while only 9% of respondents expect volume to drop.

“What we heard is that many want to get back to higher deal-making,” Pothier said.

Still, that number isn’t 90%. The wild card? Company valuations. Unlike a year ago, when 48% of respondents said they believed industry valuations would fall, half of this year’s respondents project an increase in valuations. Thirty percent expect valuations to decline.

When KPMG asked biopharma companies as to what keeps them up at night, a common refrain was competition for a limited number of firms that also have very high valuations. 

“It’s those companies that are already hot and valuations are rising,” Pothier explained. “Is it going to be enough to pay the amount of money they need to be paid in order to move forward?” 

To read a January 2024 article about a slew of Big Pharma acquisitions as JPM 2024 begins, click here.